China Bad Loans to Increase, China Orient Asset Says

Nov. 1 (Bloomberg) -- Chinese commercial banks may see an
increase in non-performing loans from this quarter through the
first half of next year, China Orient Asset Management Corp.
said, citing a survey conducted.

Bad debt may rise as much as 10 percent this year, taking
the ratio of non-performing loans to 1 percent to 2 percent of
the total by the end of 2012, China Orient said yesterday,
citing a survey of commercial banks, asset management firms,
investors and intermediaries done in June. The pace at which bad
loans increase may accelerate if concerns about a rebound in
inflation leads China to tighten monetary policy, said the
company, which buys, manages and disposes of bad debt.

Shares of China’s biggest state-owned banks have trailed
benchmarks in Hong Kong and Shanghai on concern they’ll be
saddled with unpaid loans from a record $2.8 trillion lending
boom orchestrated by the government to combat the global
financial crisis. Bad loans at the four biggest banks increased
by 2.1 billion yuan ($337 million) in the third quarter from the
previous three months.

Real estate is the major source of bad loans at Chinese
lenders this year, China Orient said. A 30 percent to 40 percent
drop in housing prices could result in losses that Chinese banks
wouldn’t be able to absorb, it said, without giving details.

Industrial and Commercial Bank of China Ltd. has declined
more than 8 percent in Shanghai trading this year, compared with
a 4 percent drop in the benchmark Shanghai Composite Index.
Shares of China’s biggest lender have risen in Hong Kong by
about 12 percent as the Hang Seng Index gained 18 percent.